Singapore Solutions

China rumours, Chapter 11 and concessions: the Singapore 2018 preview

Without a crystal ball, predictions are uncertain at best and often based on past events. But with the shipping marketplace of Singapore ever abuzz with maritime activities, it shouldn’t be overly difficult to preview the developments that lie in store in 2018.

PIL is the last major Singapore-based container line after the partly state-owned Neptune Orient Lines – which owns operating arm APL – was sold to France’s CMA CGM.

Privately-owned PIL is managed by Teo Siong Seng, who has been politically active in Singapore both as a nominated member of parliament between 2009 and 2014 and as the current chairman of the Singapore Business Federation.

Industry sources contacted by Singapore Solutions have mixed views on the rumoured acquisition. Some have said it will be a strategic and natural move by Cosco Shipping as PIL can help fill gaps in its trading routes. Others say there is no reason for PIL to sell out, given its profitable niche services operations during a tough market.

A partnership between the two groups was announced in September 2017 in a charter swap deal, wherein Cosco will lease one 6,600 TEU box ship and five 4,250 TEU ships from PIL while PIL will lease six 5,500 TEU ships from Cosco.

Cosco explained that chartering the six PIL vessels would allow the group to cover routes to the US, New Zealand, Africa and India.

US Chapter 11 hits home for Singapore

Singapore’s debt restructuring scene is poised to become nimble and substantive as a proposed US Chapter 11-like bankruptcy code has been gradually adopted over the past year. The debtor-in-possession model of US Chapter 11 in Singapore will be particularly helpful to offshore companies struggling to stay afloat under mounting debts.

The switch to adopting the US bankruptcy code will allow distressed companies to obtain fresh financing while undergoing restructuring – a much-needed step for many of the Singapore-listed offshore marine companies.

The changes to the restructuring framework is a long-term game plan for Singapore that is set to benefit not just the offshore marine segment but also the wider market.

Over the course of 2017, Singapore courts saw six cases filed that adopted the US Chapter 11-like scheme in local company laws. Singapore’s senior minister of state for law and finance, Indranee Rajah, said in November that the six legal cases are an indication that the market is willing to try out this new restructuring regime.

The long-term aim of Singapore is to bolster its position as a centre for debt revamps through an amended Companies Act, paving the way for a worldwide debt moratorium, enabling debtor-in-possession financing, and granting rescue-capital providers priority claims on assets over existing creditors.

Consultant AlixPartners said that more restructurings may happen in the Asian offshore market in 2018, with the new insolvency law in Singapore making the restructuring process "more fluid".

Plugging the bunkering loophole

The mandatory use of mass flow meter (MFM) technology limits for all bunkering operations in the port of Singapore is a good move. However, there is one issue to iron out if the MFM operation is to avoid a significant loophole.

The loophole in question exists at the point of fuel custody transfer between onshore oil terminals and bunker tankers. The onshore terminals are not bound by regulations set by the Maritime and Port Authority of Singapore (MPA) on the mandatory use of MFM during the transfer of fuel to the bunker tankers. This creates inconsistency in the fuel supply chain as bunker tankers must accept the delivery volume recorded by the terminals, putting MFM-equipped bunker tankers at a disadvantage.

Both the International Bunker Industry Association and MFM manufacturer Endress+Hauser have raised concerns over this matter, with both calling for the application of MFM systems at the oil terminals.

Endress+Hauser said the MFM-equipped bunker tankers frequently experienced differences in bunker cargo readings when compared to delivery figures provided by the terminals. Such differences in readings arise from the current method of having manual sounding operations conducted before and after unloading product into a terminal, a procedure considered inefficient and prone to human error.

It is unclear if this loophole can be plugged this year, but there are already talks underway with the terminal operators. The solution will be for either the terminal operators to accept the readings on the MFM installed on board the bunker tankers or for them to install their own MFM systems.

Concessions to stay competitive

Singapore promises to remain a competitive shipping port, particularly in light of various concessions it has put in place for 2018 to help the maritime industry weather the continuing challenging market ahead.

MPA has been proactive in monitoring market conditions, rolling out timely and appropriate initiatives that will help maritime companies ease their opex burden in 2018 and beyond.

Firstly, the port authority approved the extension of a concession of a 100% waiver of the Maritime Welfare Fee (MWF) for all vessels exceeding 75 GT with a port stay of not more than five days. This concession will run until the end of 2019. The MWF is collected to provide welfare activities, training and subsidies for housing seafarers at Maritime House when they are in port.

Secondly, newbuild LNG-fuelled harbour craft qualify for a waiver of craft port dues for five years with the waivers to be rolled out between October 2017 and December 2019. The MPA has also allowed a 10% port dues concession for LNG receiving vessels that engage LNG-fuelled harbour craft for bunkering over the same period.

Thirdly, port dues concessions for container ships, bulk carriers and OSVs have been extended until 30 June 2018. For oceangoing container ships carrying out cargo works with a port stay of not more than five days, an additional 10% port dues concession is added on top of the existing 20% concession.

For bulk carriers carrying out cargo works with a port stay of no more than five days, the existing 10% port dues concession has been extended from 31 December 2017 for another six months.

MPA also extended the incremental concessionary rate of S$0.50 per day (US$0.38) for OSVs from the current 90 days to 180 days, with the aid stretching until 30 June 2018.

Importance of the next generation

Singapore must not lose sight of nurturing the next generation and educating its youth to maintain a constant flow of talent into the industry. This must be a key agenda for the Singaporean government in 2018.

Look at the tens of thousands of job losses at both Keppel and Sembcorp Marine, plus the failure of several Singapore-based offshore marine companies. Skilled personnel and talent are lost during the downsizing of workforces and bankruptcies of companies, and confidence in the industry is shaken.

If Singapore’s undergraduates start to lose interest in the offshore and maritime sectors, the country runs the risk of an absence of advancements for the market.

It is heartening to know that there are actions being taken to avert such a disaster.

In November 2017, PSA Corporation Limited and the National University of Singapore (NUS) agreed to collaborate to nurture ‘human capital’ to support the future growth of the port industry – a much needed foresight. This will be done through a joint development of curriculum and programmes for the NUS School of Computing and NUS Faculty of Engineering.

Nanyang Technology University (NTU) has also been roped in to collaborate with government agencies and industry players to build capabilities to bring about continual upgrades to the maritime sector. In October last year, NTU and the Singapore Maritime Institute announced the joint establishment of a new Maritime Energy and Sustainable Development centre of excellence.

NTU has also separately entered into a five-year memorandum of understanding with Jurong Port to jointly pursue R&D in areas such as smart multi-energy management systems, alternative energy source applications and environmental monitoring solutions.